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Fundamentals of atheory of money:untangling Fine,Lapavitsas and ZelizerGeoffrey InghamPublished online: 10 Dec 2010.

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Fundamentals of a theoryof money: untangling Fine,Lapavitsas and Zelizer

Geoffrey Ingham

Abstract

This article criticizes both the Marxist and sociological conceptualizations ofmoney to be found in the recent debate between Fine, Lapavitsas and Zelizer inEconomy and Society. They neglect important contributions to the theory of money,especially the credit and state theories of money in the social sciences. Theseemphasize, as did Keynes, the central theoretical importance of money of account.These approaches were banished from orthodox economics and lost to sociology inthe post-Methodenstreit division of intellectual labour in the social sciences. Marxisteconomics has never properly addressed this monetary analysis. Although neglected,it is not obscure and informs the more widely known post-Keynesian theory of money.This article argues that these heterodox theories of money are essentially sociologicalin that they involve the conceptualization of money as abstract value constituted bythe social relation of the promise to pay.

Keywords: theories of money; orthodox and heterodox economics; Marxist politicaleconomy; sociology.

Introduction

It is most paradoxical that the fundamental social technology of modern capi-talism and pervasive feature of its everyday life is so poorly understood. Butmoney, it would seem, has always been a puzzle (see Ingham 1996: 507, n. 1).The recent debate in this journal between Fine, Lapavitsas and Zelizer (Fineand Lapavitsas 2000; Zelizer 2000) is testimony to a healthy revival of interest

Copyright 2001 Taylor & Francis LtdISSN 0308-5147 print/1469-5766 onlineDOI: 10.1080/03085140120071215

Economy and Society Volume 30 Number 3 August 2001: 304323

Geoffrey Ingham, University of Cambridge, Faculty of Social and Political Sciences, FreeSchool Lane, Cambridge CB2 3RQ , UK. E-mail: [email protected]

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in the subject in the non-economic social sciences.1 However, I have to con-clude that the exchange of views exposes many of the common confusionsregarding the fundamental conceptual and theoretical elements of a theory ofmoney.

Over the years, I have reached a number of general conclusions regarding thepure theory of money (Ingham 1984, 1994, 1996, 1998, 1999, 2000a, 2000b).Here I shall present brie y those that have a direct bearing on the Fine, Lapavit-sas, Zelizer debate. First, and most importantly, I agree with the disputants but not for the reasons they adduce that orthodox economics does not providean adequate theory of money. Second, I generally endorse Fine and Lapavitsasscriticism that Zelizers sociological theory of money does not constitute a theoryof money in general. I also strongly agree with their assertion which Zelizerquestions that such a theory is needed to ll the void left by orthodox econ-omics shortcomings. However, my third point is an equally strong disagreementwith Fine and Lapavitsass view that Marxs analysis of money can ll thislacuna. I believe that Marxs understanding of money was disabled by his attach-ment to the labour theory of value. But, there is an additional complication hereinsofar as I also nd myself at odds with Fine and Lapavitsass interpretation ofMarxs conception of money.

Throughout this critique I shall make use of a broad heterodox tradition ineconomic monetary analysis that I have found to be most useful in my ownefforts to unravel the mysteries of money. This literature is not referred to byFine, Lapavitsas and Zelizer. This heterodox monetary analysis originated, onthe one hand, in the early intellectual efforts to comprehend new forms of credit-money that appeared in Western Europe from the sixteenth century onwards. Itis extremely important for the general analysis of money that the distinctionbetween credit and credit-money is made clear from the outset. The new formsof money in question were not simple credit in the sense of deferred payment. Norcould they be adequately understood as direct symbolic paper representationsof precious metal, whether or not this was in coin or bullion form. Rather, these rst forms of credit-money were money in the sense that mere promises topay circulated as means of settlement (payment). It was only later that they werebacked by gold. I shall also contend that this negotiable (or transferable) debt that is, depersonalized debt that can be used as means of payment to a thirdparty is a form of money which is speci c to capitalism (see Ingham 1999).After over two thousand years during which coin and money were synonymous,this new money-form posed intellectual puzzles that gave rise to an analysis ofmoney which departed from the Aristotelian theories of commodity money towhich all orthodox economic and Marxist theories may be traced. But, mostimportantly, credit-money in its pure form laid bare the essential property ofmoney in general as constituted by social relations (Ingham 2000a: 23).

A second important source of heterodoxy emerged during the constructionof the uni ed German state during the nineteenth century. Theories of moneyin German political economy and economic history emphasized its role in non-market processes such as taxation and as the expression of national integrity and

Geoffrey Ingham: Fundamentals of a theory of money 305

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power (see Schumpeter 1994[1954]; Barkai 1989). Here, money is not essentiallyseen as a commodity (or its direct symbol) as it is in all economic accounts; itis rather conceptualized as a token claim against goods. Second, emphasis isplaced on moneys function as the means for the nal that is, unilateral payment or settlement of debts, the most important of which are tax debts to thestate. Both these standpoints were utterly incompatible with the development ofthe pure economic theory of market exchange (catallaxy) in the late nine-teenth century and, consequently, the dispute over the logical and historicalorigins of money was at the very core of the Methodenstreit .2

The most comprehensive and incisive, treatment of these fundamentallyopposed traditions in monetary thought that is to say, the commodity and claimtheories remains Schumpeters History of Economic Analysis (1994[1954]; seealso Ellis 1934). Here, he distinguishes between the credit theory of money andthe monetary theory of credit (ibid.: 717). The former theory argues that allmoney, regardless of its phenomenal form, is credit in that it represents a claimon goods (see also Simmel 1978[1907]: 1749). The holder of these claims isowed goods.3 In contrast, the orthodox economic theory of credit maintainsthat credit is distinct from money and that forms of credit must directly rep-resent or, at least, need to be backed by real money whatever that is taken tomean! Fine, Lapavitsas and Zelizer make no reference to this absolutely centraland persistent dispute on the general theory of money, which resurfaced mostrecently in an attenuated form in the opposition between Keynesians and Mon-etarists. In the wake of the neoclassical theorys hegemony, this general theoryof money has been relegated to the margins of economics and virtually lost tosociology.4

However, in early work such as A Treatise on Money, Keynes was stronglyin uenced by German state theorists such as Knapp and also the theory of bankcredit-money.5 Some of the insights live on in heterodox economics, particularlyin the ourishing and widely debated post-Keynesian theory of endogenousmoney (for surveys, see Wray 1990; Smithin 1994; Nell and Deleplace 1996).The continental European analysis of the monetary circuit also has Keynesianroots (for a concise survey, see Parguez and Seccareccia 2000; Rochon 1999).The idea that all money is debt is also to be found in the work of French inter-disciplinary social scientists such as Orlean (Aglietta and Orlean 1998). Our dis-putants similarly neglect these important contributions. It is true to say that theyhave been pushed off centre-stage by economic orthodoxy; but theories ofendogenous money and the monetary circuit are far from obscure.

I have argued that these heterodox economic approaches imply, but do notelaborate, a fundamentally sociological theory of money (see Ingham 1996,2000a). Holding that money consists in claims directs attention to the fact thatmoney is constituted by social relations and cannot be understood outside them.6 Andit must be stressed that all forms, or species, of money both precious and basemetal coin, convertible and unconvertible notes, cheques, plastic cards, book andelectronic balances, etc. generically consist in the promise to pay. As Keynesput it, for example, the rupee was a note printed on silver (Keynes 1913: 26).

306 Economy and Society

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As we shall see, the analysis of money has been dogged by a basic category errorin which the speci c form taken by money is confused with the generic socialrelations of the system of promises to pay. This conceptual confusion is mostobvious in the discussions of the end of money brought about by the recentrapid advances in the electronic settlement of debt (see, for example, Solomon1997). More speci cally, I maintain that these promises are constituted by themeans of accounting for value (money of account) and the various means or formsof the representation of abstract value (abstract purchasing power that is acceptedas means of payment/settlement of debt).7

Money in orthodox economic analysis: a critique

The inadequacy of conventional economics conception of money is hardly sur-prising. Money as an economic phenomenon sui generis does not commanda signi cant analytical status in the dominant traditions of economic orthodoxy.Here, money is merely a neutral veil that does no more than symbolize theexchange ratios of the real economy. Indeed, there is no analytical place formoney at all in the most re ned and extreme formulation of this model ofWalrasian general equilibrium analysis (see Hahn 1982: 1).8

In fact, orthodox economics cannot develop an adequate theory of moneybecause it seeks one in its methodological micro-foundations (Ingham 1996,2000a). The fundamentals of orthodox economic theory are based upon whathas been referred to as real analysis which describes the ideal type operation ofa simple natural barter (i.e. moneyless) economy of producers and traders(Schumpeter 1994[1954]: 277; Rogers 1989). It is assumed in this model that allthe essentials of economic activity can be described in terms of the relations andexchange ratios between goods and services as these are determined by indi-vidual calculations of their utilities. Exchange ratios are formed by higgling andhaggling in dyadic barter exchanges. It is essential to be clear that, at this stageof the analysis, exchange ratios are not prices as such, but rather the termsof trade speci c to each dyadic exchange. Money is viewed as a technical device that is, only as a medium of exchange. Its addition to the basic model does nomore than facilitate the more efficient conduct of transactions. It is in this sensethat money is a neutral veil or vehicle that has no efficacy other than to over-come the inconveniences of barter which, in Jevonss famous late nineteenth-century formulation, result from the absence of a double coincidence of wants.9

Both analytically (logically) and empirically (historically), the market withmoney is seen as the natural outcome of truck and barter. Moreover, marketexchange is not considered to be structurally different from barter-exchange.Following the nineteenth-century economic historians and Keynes, I shall arguethat they are distinct and that the use of a money of account makes the difference.

Mengers (1892) rational choice analysis of the evolution of monetary systemsremains the basis for all neoclassical explanations of moneys existence (forrecent reworking of the basic ideas, see Dowd 2000; Klein and Selgin 2000). It


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is the unintended consequence of acts of individual economic rationality. Inorder to maximize their barter options, it is argued, astute traders will holdstocks of the most tradable commodities which, consequently, emerge as mediaof exchange. With the further conjecture that precious metals have furtheradvantageous properties such as durability, divisibility, portability, etc. thenmoney, in its coinage form, is explained. In short, orthodox economic accountsof money are essentially commodity-exchange theories: both moneys his-torical origins and logical conditions of existence are explained as the outcomeof a natural process of exchange. However, the gradual dematerialization ofmoney broke this explanatory link between individual rationality and collective,or system, bene ts. Hence Mengers paradox that institutions such as moneymake for the common interest, and yet . . . con ict with the nearest and immedi-ate interests of contracting individuals in that an individual should be ready toexchange his goods for little metal disks apparently useless as such, or for docu-ments representing the latter (quoted in Jones 1976: 757).10

Taking up this problem, the modern theorist Hahn clearly recognized thateconomic theory had to be able to account for money deductively with its avowedmethodology of the rational maximizing agent (Hahn 1987). Economic theorymust be able to demonstrate the rationality of holding money. His failure isinstructive as it serves to illustrate the theoretical impasse and slightly absurdcircularities that neo-classical economic methodology inevitably produces.Apart from being unable to distinguish a money economy from barter exchangeby this method, Hahn could also only conclude that it is advantageous for anygiven agent to mediate his transactions by money provided that all other agentsdo likewise (Hahn 1987: 26). However, it is not so much a question of whetherit is advantageous to use money if others do, but rather that agents cannot usemoney unless others do likewise. To state the sociologically obvious: the advan-tage of money presupposes monetary institutions. Modern neo-classical econ-omics has been entirely unsuccessful in its attempt to explain these from theirspare micro assumptions.

Apart from these internal logical problems with the neo-classical theory ofmoney, there are other equally serious aws. First, the bartercom-moditymoney transition is not supported by the historical record (see, forexample, Wrays (1998, 2000) references to Innes (1913)). I shall refer to thisbrie y from time to time; but the most fundamental problem with orthodoxtheory is its neglect of signi cance of money of account. (Almost all sociologicaland Marxist analyses of money, including those of our disputants, make the samemistake.) Since the late nineteenth century, conventional economic textbookshave asserted that money is what money does and listed three functions. Theseare usually: medium of exchange/means of payment; store of value; unit (ormoney) of account. The issue is not as straightforward as is generally assumed.11

Do all the functions need to be performed by a single instrument for it to bemoney? If not, which are the de nitive ones that might uniquely specify money?Economic orthodoxy, as we have seen, focuses on the medium of exchange func-tion. But not all media of exchange are money for example, and contra Zelizer,


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food stamps, frequent- ier credits, telephone cards, etc. (Zelizer 1994, 2000).And, most obviously, money is a comparatively poor store of value. These con-ceptual problems need not concern us here, beyond stressing that economicorthodoxy continues to assume that the medium of exchange is the central func-tion and that all the others follow from it.

In opposition to the economic orthodoxy of the early twentieth century, whichcontinues to inform todays conventional view of money, Keynes argued thatthere is a qualitative structural difference between barter exchange and marketexchange. Strictly speaking, barter must remain bilateral, but the use of anabstract money of account makes possible the use of price lists in an extensivemultilateral decentralized market. Possibly because of his familiarity with thework of the German historical school of economics, Keynes spent a great dealof time in the 1920s studying the monetary systems of the ancient Near East.What he referred to as his Babylonian madness led Keynes to conclude thatthe economic relations in this empire during the third and second millennia BCwere structured by a money of account and that payment was made in com-modities, labour services, or in silver by weight (see Ingham 2000a). That is tosay, he argued that money in this abstract sense existed for several thousandyears before the rst use of coinage around 700 BC. Money of Account, namelythat in which Debts and Prices and General Purchasing Power are expressed isthe primary concept of a Theory of Money (Keynes 1930: 3). In what wasalmost certainly intended as a brusque rebuff to Mengers dogmatic insistencethat money had only one function, Keynes continued: Something which ismerely used as a convenient medium of exchange on the spot may approachbeing Money. But if this is all, we have scarcely emerged from the state of Barter(Keynes 1930: 3).

Money of account is taken for granted in mainstream economics, which hasassumed that it evolves as the natural consequence of the use of a commodity asa medium of exchange. The primeval market produces a transactions-costefficient medium of exchange that becomes the standard of value and money ofaccount. In this theory, coins evolved from weighing pieces of precious metal thatwere cut from bars and only later, after standardization, counted. However, thereare both a priori and empirical grounds for reversing the causal direction. Moneyof account is logically anterior and historically prior to the market (in additionto Ingham 1996, 2000a, see Hoover 1996; Hicks 1989; Orlean 1998).

In the rst place, without making a number of implausible assumptions, it isdifficult to envisage that a universally agreed money of account could emergefrom myriad bilateral barter exchange ratios based upon subjective preferences.One hundred goods, it should be noted, could yield 4,950 exchange rates (Davies1994: 15). How could discrete barter exchange ratios of, say, three chickens toone duck, or six ducks to one chicken, and so on, produce a universally recog-nized unit of account? The conventional economic answer that a duck standardwould emerge spontaneously involves a familiar circularity of argument. Asingle duck standard cannot be the equilibrium price of ducks established bysupply and demand because, in the absence of a money of account, ducks would


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continue to have a range of unstable exchange ratios. A true market, as opposedto discrete truck and barter, which produces a price for ducks requires rst andforemost a stable unit of account.12 As opposed to the commodity duck, the mon-etary duck in any duck standard, would be an abstract duck. Walras, the founderof modern economics general equilibrium analysis, identi ed the theoreticalproblem over a century ago and introduced the auctioneer and a numeraire toget the trading started in his mathematical model of the market. Marketexchange requires only a money of account. As the ancient Babylonians, eight-eenth-century AD Bostonians and countless others knew, money is essentiallymoney accounting which can be accompanied by payment in kind and/ormyriad media of exchange and payment (on eighteenth-century Boston, seeBaxter 1945).

The history of money provides ample evidence of the existence of what thesixteenth-century Italians referred to as moneta immaginera that is to say,abstract units of account that were never minted (moneta reale). Indeed, one ofthe best known pounds, shillings and pence in the ratios 20:12:240 was anabstraction imposed by Charlemagne in order to bring coherence to the mone-tary anarchy of post-Roman Europe (Einaudi 1953[1934]). Only later were coinsminted that, in Keyness phrase, answered the description provided by theabstract money of account (Keynes 1930: 34). But the continuous stability ofthe abstract ratios over very long periods of time and the existence of abstractpurchasing power, regardless of the precious metal content of any coinage, is themost telling evidence for the fact that, in the rst instance, money is a tokenvalue established by an abstract money of account (Einaudi 1953[1936]; Innes1913). Medieval European princes altered the value of their coinage by themodi cation of the money of account crying up and crying down the money(Innes 1913; Wray 2000; Boyer-Xambeu et al. 1994) Altering the precious metal-lic content might have increased the pro ts of seignorage, but did not as is com-monly thought alter the purchasing power of the money.

If it is extremely implausible that market exchange, in itself, could producethe abstraction of a money of account, what is its origin? The nineteenth-centuryGerman historical school argued that the idea of money is to be found in the scaleof tariffs for the precise measurement of debts to be paid in compensation forinjuries and damages laid down in institutions such as wergeld (worthpayment)(for an accessible survey in English, see Einzig 1966). The evidence from Ger-manic tribal societies post-dates Babylonian money of account and early coinage;but it is argued that wergeld was a basic institution of elementary society. Thenumismatist Grierson (1977) has provided the most thorough analytical rework-ing of this conjecture. First, he draws a clear distinction, as I have done, betweenbarter and money exchange. The parties in barter-exchange are comparing theirindividual and immediate needs, not values in the abstract (Grierson 1977: 19).Second, Grierson distinguishes between what I would refer to as money ingeneral and its speci c forms. Behind the phenomenon of coin there is thephenomenon of money, the origins of which are not to be sought in market butin a much earlier stage of communal development, when worth and wergeld were


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interchangeable terms (Grierson 1977: 33). He concedes that there is no directevidence that wergeld institutions predated the appearance of markets; but arguesthat the concept of moneysworth could not have been produce by the market.

The conditions under which these laws were put together would appear tosatisfy much better than the market mechanism, the prerequisites for theestablishment of a monetary system. The tariffs for damages were establishedin public assemblies, and. . . . Since what is laid down consists of evaluationsof injuries, not evaluations of commodities, the conceptual difficulty of devis-ing a common measure for appraising unrelated objects is avoided.

(Grierson 1977: 201)

I have suggested elsewhere that Griersons hypothesis may be interpreted ina Durkheimian framework in which money of account is a collective represen-tation for which the analogue is society itself (Ingham 1996: 51921).13 Wergeldexpressed two fundamental elements of social structure: the utilitarian and themoral evaluation of social roles and positions. The indemnity schemes of thewergeld aimed to compensate for functional impairment, but also expressedsocietys normative order. The scales of nes and tariffs were related to bothinjuries and insults.14

Money is fundamentally an abstraction to which myriad forms of money-stuffmight correspond. The almost universal tendency to identify money exclusivelywith money-stuff is the source of much confusion. This elementary categoryerror would appear to have been sustained by the persistent equation of moneyand coin in common sense and a closely related anachronistic and mistakeneconomic theory of commodity money. In this regard, it should be rememberedthat it is not quite twenty years since the underlying structure of the archaiccommodity theory of money provided the basis for the application of a recrude-scence of the late nineteenth-century quantity theory of money in the mone-tarist experiment. With forms of credit-money as the typical means of monetarytransaction in capitalism, Fishers quantity theory was outmoded at the timeof its publication in 1907. Its revitalization by Friedman to form the intellectualbasis for such in uential policy making now appears truly remarkable.15

The second major defect of the orthodox conception of money has been, aspost-Keyenesians stress, the chronic inability adequately to conceptualize capi-talist credit-money (Nell and Deleplace 1996; Parguez and Seccareccia 2000).The source of this failure again lies in the category error and consequent inabil-ity to grasp that this transformation was constituted not by a simple change inthe form of money-stuff that is, metal to paper. Rather, capitalist credit-moneywas produced by a qualitative transformation in the social relations of the modeof monetary production (Ingham 1999). As I have outlined, the underlying con-ception of money in orthodox theory of commodity-exchange has its origins inthe stylized model of the pre-capitalist trading economy that is, in Minskysscornful attribution, the village fair (1982).16

Unless one dismisses in the manner of orthodox neoclassical economics all institutional variation in economic systems as tosh (Williamson 1994: 97),


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it is clear that the simple model of the barter-trading economy is quite inade-quate for grasping the complexities of the capitalist system. But, given itsassumptions, orthodox economics has been compelled to attempt to explain theemergence of the capitalist credit-money form (notes, bills, bank deposits, etc.)as the direct representation of real commodities as in, for example, the ortho-dox theory of the gold standard and the real bills doctrine (see Smithin 1994;Ingham 1996).17 Gradually, however, over the twentieth century, precious metalscoinage standards were abandoned and the monetary reserves that form thebases for the issue of further credit-money are now themselves exclusively otherauthorities promises to pay.18 Capitalist credit-money is nothing more than anetwork of claims backed by banks and states promises to pay that are fabri-cated into a hierarchy of credibility by foreign exchange markets and globalcredit-rating agencies. But this of course is not new. In terms of the basic socialstructure for the production of money, only the disappearance of the useful ideo-logical ction of a gold standard and the formal processes of credit rating sepa-rates the twenty- rst from the seventeenth century.19

Actually existing capitalism, as opposed to the village fair, was constituted bya new form of dematerialized credit-money. From the early beginnings in latemedieval Italy, state and bank debts that is, their promises to pay becameaccepted means of payment. In other words, debts could be discharged with ahigher quality form of debt that was trusted and/or enforced. This trans-formation in the form of money required the signi cant social structural changeof the depersonalization and transferability of debt. It involved the transform-ation of a personalized bilateral debt relation (for example, an IOU) into themeans of paying a third-party creditor (see Ingham 1999; Rowlinson 1999). Adebt could be paid with another debt.20 It is precisely this fact that money isconstituted by a social relation of creditdebt which mainstream economics,in its unremitting materialist preoccupation with the individual calculation ofthe utility of commodities, has found difficult to comprehend.

This use of transferable depersonalized debt as a general means of paymentis arguably one of the most important developments in humanitys organiz-ational or infrastructural powers. It freed the production of money from thenatural constraints of territory and geology and brought about the possibility ofa managed elasticity of the supply of money. At this time it became an auton-omous force of production (Keynes in Smithin 1994: 2; Schumpeter 1994[1954]:318). However, as I have argued elsewhere, modern credit-money cannot beexplained simply as the direct result of the need for more efficient money in aneconomy whose dynamic lay elsewhere, in real factors such as technology, thedivision of labour or even capitallabour social relations of production. Thecredit-money form was the result of particular geopolitical conditions and socialstructural changes that occurred in the reawakening of Europe after the collapseof the Roman Empire and its coinage system (Ingham 1999).

We must now turn our attention to the debate between Fine, Lapavitsas andZelizer and its relation to this critique of the mainstream economic conceptionof money; and then to a brief sketch of a more adequate sociological alternative.


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The social meaning of money

Zelizer quotes Randall Collinss telling remark that money is ignored by sociolo-gists as if it were not sociological enough and also bemoans the fact that the Inter-national Encyclopaedia of the Social Sciencess thirty pages on money do notinclude any reference to its social characteristics. Here, she indignantly observes,one nds essays on the economic effect of money, on quantity theory, on veloc-ity of circulation, and on monetary reform, but nothing on money as realit sociale,in Simiands apt term (Zelizer 1994: 4). But I would argue that this is not so mucha critique of the economics of money as it is an implicit expression of the termsof the settlement of the post-Methodenstreit division of intellectual labour in thesocial sciences. Economics deals with moneys instrumental functions and soci-ology with its cultural and social meanings and effects (Ingham 1998; see alsoGanssman 1988). So much is obvious. But instead of mounting an attack on econ-omics imperialistic monopolization of the study of moneys pivotal importancein the economy, Zelizer uses the sociological embeddedness approach to arguethat economics holds an untenable theory of money in general.21 Furthermore,she argues that classical sociologys acceptance of this economic conception ofmoney led to its exaggerated and unduly pessimistic view of moneys homogen-izing, depersonalizing and alienating effects (Zelizer 1994: 46).

I would suggest, however, that in rejecting the supposedly economic concep-tion of money so completely Zelizer tacitly endorses the intellectual divisionsbetween the disciplines that I have found unhelpful. Her account of the Ameri-can states creation of a standardized national money implies an unwittingobeisance to economics hegemony (1994: 1318). This is somewhat misleadinglyentitled Creating Market Money (emphasis added) and misses an opportunity toreclaim the creation of money in general as a sociological problem. To be sure,standardized currencies are involved in the creation of market boundaries and thiswas probably in some American minds in the nineteenth century. However, for atleast four thousand years states have created uniform money (both money ofaccount and money-stuff) in order to collect taxes more efficiently and not pri-marily to produce a public good for the more efficient functioning of the market(Knapp 1973[1924]; Weber 1978). States produce money in order that they canthen collect it from their citizens (Wray 1998). Moreover, [t]he need to pay taxesmeans that people work and produce in order to get that in which taxes can bepaid (Minsky 1986, quoted in Wray 1998: 35).22 To argue that [t]here is no single,uniform, generalized money, but multiple monies; people earmark different cur-rencies for many or perhaps for all types of interactions, different social interac-tions, much as they create distinctive languages for different social contexts is anexaggeration. Indeed, the social earmarking of money for speci c purposes thatZelizer so carefully documents could not occur unless uniform money existed.

Furthermore, Zelizers studied avoidance of a general theory of money leadsto confusions within her avowed framework. First, The Social Meaning of Moneyis replete with the type of category errors that I referred to earlier. Aside fromthe common misidenti cation of money with money-stuff , Zelizer, as I have


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noted, looks upon highly speci c and restricted media of exchange, such as foodstamps and chips for gamblers, etc., as money (1994: 4). However, any qualityof moneyness that these tokens possess is determined by the money of accountin which they are denominated or to which they relate. Moreover, such tokensand other restricted media of exchange, in addition to genuine local currencies,and the different social meanings given to money in general are all classi edtogether as examples of multiple money. Second, I cannot see how Zelizersanalysis requires that she should question moneys property of fungibility (1994:5). To pursue one of her own examples: it would seem to me that a centrallyimportant quality of money is that it can be laundered and that the state doesnot enquire into the meaning of money or differentiate between dirty or cleanmoney in payment of taxes. The fact that dirty money burns a hole in yourpocket and has to be used quickly (1994: 5) is precisely because it is likely tohave been the result of a transaction not registered for tax purposes and has tobe disposed of before detection.

Sociology has a good deal more to say about money than the analysis of itscontextualized social meanings. Indeed, one is tempted to agree with the econ-omist Williamson that the sociological embeddedness approach to the under-standing of the economic realm runs the danger of becoming restricted to thethick descriptions of contextual tosh (Williamson 1994). Money is essentiallya social fact (Mauss 1914, quoted in Zelizer 1994: 25) primarily because it is theproduct of the social relations of states and banks, not primarily because its useis given multiple social meanings. The Social Meaning of Money provides aninteresting and valuable ethnographic analysis of the multiple meanings given tothe use of money. It is also a useful corrective to the more extreme diagnoses ofmoneys depersonalization of social life. But the case is overstated and at timesit is almost as if Zelizer has to remind herself that [i]t is not entirely utterlyfoolish to suppose that the monetization of social life spreads uniformity, pre-cision, and calculation. After all, a money economy made a signi cant differenceto social organisation (Zelizer 1994: 12).

Marx to the rescue?

Some time ago, I argued that Marx underestimated the extent to which mone-tary and nancial transactions were autonomous from the process of commodityproduction (Ingham 1984). More recently, as I have already indicated, I havereached the conclusion that Marxs theory of money is awed like those ofother classical economists because it is grounded in the labour theory of value(Ingham 1998: 68). As I shall brie y outline in the nal section of this critique,the relatively autonomous production of money is connected to the productionof commodities by a fragile socially enacted process. There is no determinatelink between money and commodities. A general theory of money is needed, butit will not be found in Marx or in the revision of his analysis used by Fine andLapavitsas.


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Throughout this work, Marx tells us on the rst line of Chapter 3 of CapitalVolume 1, I assume gold as the commodity-money. On this level, his analysiswas thoroughly conventional for its time. Money as a measure of value, is thephenomenal form that must of necessity be assumed by that measure of valuewhich is immanent in commodities, labour time (Marx 1970: 97). In otherwords, [g]old can serve as a measure of value only because it is itself a productof labour (Marx 1970: 192). Marx considered other forms of symbolic value such as bank notes, trade credit and bills of exchange to be money only insofaras they represented commodities. On the one hand, for example, convertiblebank notes stood for precious metals and, on the other, bills of exchange rep-resented the exchange of actual commodities in production and circulation.

However, at times, Marx seems to understand that credit-money can becreated and sustained in a manner that is quite independent of the productionand/or circulation of commodities (see Volume 1 of Capital, Chapter 36, Marx1959). But, it is signi cant that this chapter is entitled Pre-capitalist socialrelationships. Although credit-money, he argues, develops as a reaction againstusury (3: 600) it plays an essentially similar dysfunctional role in capitalismitself. Because of their autonomy, banking and credit thus become the mostpotent means of driving capitalist production beyond its own limits, and one ofthe most effective vehicles of crises and swindle (3: 607). This is because credithas expanded from its necessary proportions in relation to labour and its prod-ucts. Marx was quite conventional in this view that credit instruments (bills ofexchange, promissory notes, etc.) were or rather should be in a rationally organ-ized system no more than substitutes for hard cash. Also, in sketchy passages atthe end of Volume 3 of Capital, Marx grasps the way in which the national debtsof the Italian city states, Holland and England in the early modern period createdmoney in the form of circulating negotiable debt, or claims against the state.The public debt . . . with the stroke of an enchanters wand . . . endows barrenmoney with the power of breeding (3: 706). But he goes on to deplore the wayin which these developments, whereby money appeared to be created ex nihilo,had created a parasitic bankocracy that had to be serviced out of the valueproduced by the creators of real capital. In short, money can be a universalequivalent because it is the embodiment of the universal equivalent labour. But,as Ganssman has recently, and perhaps reluctantly, concluded, The Marxianstarting point of the theory of money and credit [the law of value] has to be leftbehind, as do all starting points (Ganssman 1998: 153).

However, in Fine and Lapavitsass interpretation of Marx, we are not offeredthe classical labour theory of value nor a reference to any of the recent efforts toreconcile classic Marxism with the reality of credit-money (see Kennedy 2000;Ganssman 1998; Bello ore 1998).23 Rather, they present an essentially Hegelianformulation on the origins of money: Marxs derivation of the common char-acter of money, they stress, amounts to a process of logical becoming, whichinevitably appears whenever commodities come into contact with each other(Fine and Lapavitsas 2000: 369, emphasis added). The forms of value, includ-ing the money form and hence price, they assert, emerge spontaneously from


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the anarchical relations among commodities in the process of exchange, capital-ist or otherwise (ibid.: 366, emphasis added). I nd it difficult see how this con-ception enables us to break free from the self-imposed constraints ofneoclassical theory with its focus on money as a means of exchange (ibid.: 366).Fine and Lapavitsas quite correctly see that the medium of exchange, as con-ceptualized in economic neoclassicism, does not explain the existence of the uni-versal equivalent. But there is no logical nor historical reason for arguing thatthis could spring from anarchical relations among commodities or even thematerial in which commodity values are expressed (ibid.: 366, emphasis added).In the rst place, like all theories that try to ground the essential properties ofmoney in the commodity, this formulation does not appreciate the signi canceof the concept of money of account. Indeed, it is precisely anarchical relationsof this kind that I had in mind earlier in arguing that the concept of a money ofaccount could not emerge spontaneously.

Fine and Lapavitsass stress on the inability of neoclassicisms medium ofexchange conception to grasp the complexities of capitalist money is welltaken.24 But, in their restriction of the historical account of money to Smith andMarx, they offer a confused account of its evolution, which endorses two mis-taken orthodoxies.25 First, in exactly the same manner as the neoclassical econ-omic approach to history, Fine and Lapavitsas seem to believe that markets,commodities, and money (not to mention banking, insurance, and commercialtrading are economic phenomena that long pre-date capitalism (ibid.: 366).26

Second, following Marx, they imply that the historical speci city of capitalismis to be found exclusively in capitallabour social relations of production. Theseissues cannot be pursued here, but it should be noted that both Marxism andorthodox economic theory have tended to ignore the distinctiveness of capital-ist bankings creation of money through the act of bank lending. On the basis oflate nineteenth-century German historical studies of the ancient and classicaleconomies, Weber warned: one must guard against thinking in terms toomodern. Pre-capitalist banks were simple intermediaries whose notes wereonly a means of transmitting payments between the network of depositor-customers; whereas, the modern bank note circulates independently of any par-ticular individual (Weber 1981[1927]: 255). Credit-money is a constitutiveelement of capitalism (Schumpeter 1994[1954]; Ingham 1999).27

More fundamentally, Fine and Lapavitsas persist with the theoretically andhistorically inaccurate view that money originates in trade because it is itself acommodity. Their contrast between Smiths account of the origins of moneyin truck and barter and Marxs argument that it was needed only for inter-societal trade is based on long since superseded history. As I have stressed, itis well established but largely ignored that abstract money accounting wasa fundamentally important technique for the economic organization of thecommand economies of the ancient Near East. Moreover, money of accountwas an essential means of accounting for both debtorcreditor relations and theallocation of resources in these pre-market, pre-capitalist economies (Wray1998).


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Agreement with Keynes, that money of account is primary also helps toresolve another problematic effect of neoclassical economics claim for hegemonyin the social sciences to which Fine and Lapavitsas also refer. The sterile debatein social anthropology on question of primitive money was triggered, we shouldremind ourselves, by the economic theorists non sequitur that, if primitivesocieties did not have markets, then they could not have money. Value, whichmoney possessed along with other commodities, could be established, theyinsisted, only in market exchange. The category error in identifying money byits forms is particularly in evidence here in the distinction between the generalpurpose money of the modern market economy and the limited purpose ofprimitive money. Leaving aside all other aspects of this hoary debate, its steril-ity is exposed if the identi cation of money with money-stuff is abandoned.Money is abstract value that has many forms in both primitive and moderneconomies. We need only think for a moment about todays myriad media ofexchange notes, coins, cheques, electronic transfers, plastic cards and so on,which are to some extent as limited purpose as their so-called primitive coun-terparts. Rowlinson has recently expressed the quintessential theoretical pointwith great clarity in his study of money and national identity in early capitalism.

By the 1830s, then, Britons could at different times and places have under-stood gold sovereigns, banknotes, or bills of exchange as the privileged localrepresentatives of the poundthe pound as an abstraction was constitutedprecisely its capacity to assume these heterogeneous forms, since its existenceas a national currency was determined by the mediations between them.

(Rowlinson 1999: 645)

Conclusions28

The conceptual apparatus of almost all the general theories of money in thesocial sciences derives in some way or other from a commodity theory of moneyin which money is essentially a thing or a direct symbol of a thing. There arefundamental differences in the way the various theories explain how the valueof the thing is determined for example, as an expression of relations betweencommodities, as an expression of labour time, or in exchange, or as a symbol ofcommodities, etc. However, none of the theories is able uniquely to specifymoney that is to say, mainstream economic approaches cannot, within theirown analytical framework, account for the difference between money and othercommodities. To be sure money is a commodity, but it only becomes one afterits moneyness has been ascribed outside the market. Here we have a further, andarguably most fundamental, category error to contend with. There is a generaltendency to con ate the two distinct questions of the quality of moneyness, onthe one hand, and the value of money, on the other. A moments re ection willreveal that the one cannot be reduced to the other. This distinction was madeclearly by Knapp in his State Theory of Money where he argued that the state(or monetary authority) confers the quality of valuableness according to a


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money of account, but cannot directly determine the actual value of money, aspurchasing power (see Knapp 1973[1924]).

Money is a socially constructed abstract claim on goods that is constituted byits own social relations and means of production. Social meanings of moneyare involved, but here we must not lose sight of the obvious fact that, in thisrespect, money in general results from the power to impose a hegemonicmeaning. More precisely, the production of forms of money in capitalism ischaracterized by a power struggle. On the one hand, there are the various agen-cies for producing money mints, central banks, ministries of nance, privatebanks and a growing number of informal local monetary systems; on the other,there are the producers of commodities capital and labour. The value of money or what Weber referred to as its substantive validity is socially enacted bythe owners, controllers and producers of both money and commodities. The twosides money and goods are, from a sociological standpoint, distinct and rela-tively autonomous. Agents attempt to monetize their market power either bybidding up prices in money of account or by the expansion of value throughborrowing and the creation of money.29 On the money side, agents attempt topreserve and store value in money form and to control its supply to exact inter-est. Or, they might forge new social relations of credit (monetary innovations),which they hope will be validated by the monetary authorities as a liquid asset(see Goodhart 1989). States and their central banks have their own particularinterests and constitute the third corner of this triadic power struggle (Weber1978; Ingham 2000; Graziani 1990).

In short, capitalism is based on a complex structure of institutionalizeddebtorcreditor relations; it is, as the French historian Marc Bloch remarked(1954: 77), a regime that would collapse if everyone paid his or her debts. Thesupply of money is the outcome of the con ict between those wishing to expandvalue through the creation of credit-money and those concerned to limit thisthrough fear of in ationary consequences (see Mirowski 1991). This trade offand tension between the expansion of value through the elasticity of supply ofcredit-money supply and the breakdown of monetary stability is arguably thecentral dynamic of the modern capitalist system (see Minsky 1986). Money,then, is not the neutral medium of exchange of orthodox economics, nor is itthe direct symbolic representation of the commodity form, nor is it constitutedmerely by social meanings. Rather, as Weber explained in his sociologicalinterpretation of Austrian economics, money is itself primarily a weapon in thestruggle for economic existence. Money supply and money prices are instru-ments of calculation only as estimated quanti cations of relative chances in thisstruggle (Weber 1978: 107).

Notes

1 Fine and Lapavitsass critique of Zelizer deals with both markets and money; but hereI shall restrict my attention to money. In the rst place, to deal adequately with bothwould require much more space. Second, although the institutions of money and markets


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are obviously closely interconnected, I shall argue contrary to economic orthodoxy andthe strong implications of Fine and Lapavitsas that money is logically anterior and, asfar as we can establish, historically prior to extensive markets. This is not to say, however,that the concept of the market does not need the same kind of conceptual clari cationthat I undertake here for money.2 The con ict over methods (Methodenstreit) was most prevalent in the German socialsciences during the late nineteenth and early twentieth centuries (Swedberg 1987;Machlup 1978). Very generally speaking, it was a dispute between the advocates of theapplication of the methods and aims of the natural sciences to the social world and theiropponents in the historical, social and cultural sciences. The economic theorists of theformer camp wished to establish the logical origins of money that is, to deduce itsexistence from the rst principles of their universal law of exchange. The historiansproduced evidence to suggest that money did not originate in the market, but rather inthe state. The arch-theorist Menger, for example, steadfastly refused to acknowledgethat money had any functions other than as a medium of exchange in market transactions.Money could have value only because it was a commodity whose value was determinedby the only means possible that is, in exchange (Menger 1892).3 This is the core of the truth that money is only a claim upon society. Money appears,so to speak, as a bill of exchange from which the drawee is lacking (Simmel 1978[1907]:177). Note that these parts of The Philosophy of Money that deal with the social produc-tion of money have been neglected, following the post-Methodenstreit division of intel-lectual labour, in favour of Simmels treatment of the social effects of money (Ingham1998).4 Simmel was in uenced by the German historical school; but this is not obvious tolater generations of scholars, as he was rather shy to acknowledge his sources.5 By the time of the publication of The General Theory, Keyness theory of money andbanking had become much more orthodox (see Rogers and Rymes 2000).6 Marxist economists sometimes contend that money is a social relation, by whichthey mean that economic relations are really social relations of production and exchangethat are masked or mediated by money. I am arguing that, as credit/debt, money isactually constituted by social relations (Ingham 1996, 2000a).7 Despite my rejection of Marxs underlying theory of money, and especially Fine andLapavitsass interpretation, the general analytical scheme of means and social relationsis a useful starting point for the analysis of the production of money as a social tech-nology for performing these two basic functions.8 This analytical position is the source of potential contradictions in economicorthodoxy. Most notably, economic orthodoxy has argued for the control of the supply ofmoney to reduce in ation and, at the same time, denied that the supply of money canhave an effect on activity in the real economy. The difficulty has been evaded by thefamiliar long run/short run distinction. In the long run, after the rational expectationsadjustment of short run money illusions, money is neutral with regard to economyactivity.9 Efficient barter requires that, for example, A wants chickens but has ducks to tradeat the same time that B has ducks but wants chickens.10 Modern economic neoclassicism has attempted to update Menger by arguing thatmoney reduces transaction costs for the rational maximizing agent (Klein and Selgin2000).11 A useful distinction may be made between medium of exchange and means of nalpayment (settlement), as expressed in the different forms of money; for example, thecredit card and the cheque or standing order. Sometimes other functions such as standardof deferred payment are included, but they would seem to be subsumed under the others.12 See White (1981) for a clear distinction between the economic theory of pureexchange and the structural properties of markets.13 Nineteenth-century positivism sought an answer to the origins of money in nature


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hence the commodity. It was argued that other measures such as length had naturalanalogues such as yards and cubits. There is of course no natural analogue for value.14 For example, it cost four times as much to deprive a Russian of his moustache orbeard as to cut off one of his ngers (Grierson 1977: 20).15 Part of the gold standards appeal lay in its ideological naturalization of the socialrelation that is money (see Ingham 2000a).16 In contrast to the C-M-C1 of the village fair, Marxs M-C-M1 formula points to thetypical capitalist circuit, and Keyness concept of a monetary production economy refersto a system that is founded upon the elastic production of credit-money by banks thatis to say, capitalism (Keynes, quoted in Smithin 1994: 12).17 In this respect, the quite erroneous explanation of the development of bank notesfrom the receipts issued by goldsmiths for bullion left in their safekeeping is still to befound in mainstream textbooks (Begg et al. 1991: 4047). Bills of exchange and nationaldebts played a far more important role in the development of capitalist credit-money (seeIngham 1999).18 Some capitalist states recently began to dispose of their gold reserves, but had to atleast slow down the process because of the disruption it caused to the gold market.19 In important respects, todays global monetary system is comparable to the anarchyof sixteenth-century Europe with its competing moneys of account and pure creditinstruments (see Boyer-Xambeu et al. 1994).20 This is perhaps the most important dimension of the shift from particularistic touniversalistic and impersonal social relations of the so-called modern world. It wasconspicuously absent from the classical economies of Greece and Rome (Weber 1978;Ingham 1999).21 Zelizer does not explicitly follow Granovetters in uential article (1985), but herbook may be taken as an example of this sociological genre.22 One should also note, in relation to the discussion in the Conclusion, that thistaxation relation is one of the ways in which money become valuable.23 I am reluctant to enter into an exegetical debate of Capital. In short, I am arguingthat Marxs analysis of money cannot be understood without reference to Chapter 3 entitled Money, or the Circulation of Commodities or to Section D of Chapter I, TheMoney Form. As Fine and Lapavitsas explain, they are following the Uno school ofMarxism in this regard.24 Fine and Lapavitsass vestigial and, from their own standpoint, contradictoryadherence to the classical commodity theory of money is clearly apparent in their briefaccount of moneys role in modern capitalism. [T]he bulk of monetary transactions invalue terms . . . are no longer mediated by money but by credit (2000: 370). But whatis the difference? Using Fine and Lapavitsass concepts, can one distinguish the one fromthe other? 25 This is also where the long disregarded German historical schools work is importantin exposing the serious inadequacies of Smith and Marxs reliance on classical Greekanalyses, such as that of Aristotle.26 The question of the historical speci city of capitalism as a modern and Westernphenomenon was a de ning question in the Methodenstreit. The economic theorists ofthe time, like their modern successors, argued that the laws of economics applied univer-sally across time and space and that ideographic analysis that is, history providedthick description, but not explanation. For a recent attempt to argue for the moderncapitalistic character of classical Greek banking, see Cohen (1992).27 In fact, somewhat contradictorily, Weber does not go so far as to include this kindof banking in his ideal type of capitalism which, like Marx, emphasizes the social relationsof production (see Weber 1981[1927]: ch. 22).28 There is insufficient space to elaborate and illustrate these very general arguments.A little more detail will be found in Ingham (1996, 1998, 1999, 2000a, 2000b). A thoroughtreatment will be provided in A Sociological Treatise on Money (in preparation).


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29 Keynes succinctly captured the social production of bank credit-money in A Treatiseon Money:

[I]t is evident that there is no limit to the amount of bank-money which the banks cansafely create provided that they move forward in step. The words italicised are the clueto the behaviour of the system. . . . Each Bank Chairman sitting in his parlour mayregard himself as the passive instrument of outside forces over which he has nocontrol; yet the outside forces may be nothing but himself and his fellow-chairmen,and certainly not his depositors.

(Keynes 1930: 267)

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